IS BC`S HealtH Care SyStem SuStaInaBle?

Transcription

IS BC`S HealtH Care SyStem SuStaInaBle?
IS BC’s Health Care
System sustainabLe?
A Closer Look at the costs of Aging and Technology
By Marc Lee
November 2006
IS BC’s Health Care System sustainabLe? | A Closer Look at the Costs of Aging and Technology
November 2006
By Marc Lee
Acknowledgements
The author would like to thank Mary Adlersberg, Aaron Cass, Marcy Cohen, Shannon Daub, Seth Klein, Kim
McGrail, Margaret McGregor, Maurice McGregor, Aleck Ostry, and Sally Thorne for their comments on an
earlier version of this paper. Thanks also to Andrea Gregg for research support.
Any errors and opinions in this paper are those of the author, and do not necessarily reflect the views of the
Canadian Centre for Policy Alternatives.
About the Author
Marc Lee is a Senior Economist with the BC Office of the Canadian Centre for Policy Alternatives. He is a
frequent media commentator on public policy issues and has authored many CCPA publications looking
at fiscal policy and the financing of public services, including Financing Higher Learning: Post-Secondary
Education Funding in BC (with John Malcolmson), Who’s Cutting Classes? Untangling the Spin About K-12
Education in BC, and The Hidden Costs of Health Care Wage Cuts in BC (with Marcy Cohen). Marc is the Chair
of the Progressive Economics Forum and the Vice Chair of the Vancouver City Planning Commission.
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Contents
Summary......................................................................................................... 4
Introduction.................................................................................................... 8
Health Care and the BC Budget: Deceptive Statistics..................................... 9
Population Aging and Health Expenditures................................................. 10
Apocalypse 2031?......................................................................................... 14
The Realm of the Possible............................................................................. 17
New Surgical Techniques........................................................................ 18
Diagnostics and Imaging........................................................................ 19
Pharmaceutical Drugs............................................................................. 19
End-of-Life Care...................................................................................... 20
Technology: Who Decides?........................................................................... 22
Conclusion..................................................................................................... 24
Notes............................................................................................................. 25
References..................................................................................................... 27
Summary
A popular myth is that an aging population will render the public health
care system unsustainable. Indeed, such a presumption seems to underscore
the premier’s current “conversation” with British Columbians. This paper
contributes to the conversation by providing a better understanding of cost
pressures in the health care system and what they mean for the future in
terms of sustainability.
This paper finds that population aging, in and of itself, is but a small contributor to rising cost pressures
in the health care system. Based on current projections there is little to suggest a demographic timebomb about to go off. Instead, the real challenge for financing the health care system is advances in
technological possibilities, broadly defined to include pharmaceutical drugs, new surgical techniques,
new diagnostic and imaging technologies, and end-of-life care. These challenges can be addressed
most efficiently and equitably in the context of a public system.
In terms of overall sustainability, Finance Minister Carole Taylor’s assertion that by 2017 health care
will consume over 70% of the provincial budget is extremely misleading:
•
Taylor assumes health care expenditure increases far in excess of recent history, while
greatly understating potential revenue growth.
•
Health care spending is consuming a larger portion of the budget because other areas of
the budget have not had sufficient funding increases in recent years. Education funding
has been held to very small annual increases, while social services and other areas of the
budget have seen devastating cuts.
•
Taylor is measuring the wrong thing – what matters is the share of our total income
(GDP) we spend on health care, not the share of the provincial budget.
Canadian Centre for Policy Alternatives – BC Office
This paper undertakes a detailed analysis of cost pressures in the health care system. It finds that:
•
Population aging has been a cost driver in the system, but a very small one compared to
other sources. The impact of population aging was 0.9% per year over the 1995 to 2005
period. This is consistent with other studies of population aging.
•
Inflation (as reflected in salary increases and higher cost of supplies) has been the biggest
cost driver over the 1995 to 2005 period, with increases averaging 2.4% per year, followed
by population growth at 1.2% per year.
•
The expansion (or “enrichment”) of health care services over time (such as new
technologies, long-term care, home care and pharmaceutical drugs) is also an important
factor. The average British Columbian receives one and a half times more health care
services as his or her equivalent 30 years ago.
•
Research shows that the cost of dying is very high – one-third to one-half of a typical
person’s health care expenditures happen in the final year of life.
The paper then projects future health care costs and situates those estimates in the context of economic
growth. To accommodate future population increases, aging and inflation, health care expenditures
must rise by just under 5% per year simply to stay at the same level of services. These pressures are all
manageable if BC experiences reasonable rates of economic growth:
•
In a high-growth scenario (6% nominal GDP growth per year), public health expenditures
fall from 7.1% of GDP in 2006 to 4.9% in 2031.
•
In a medium-growth scenario (5% annual growth), they fall to 6.3% of GDP by 2031.
•
Even if the economy were to fare poorly by historical standards (4% annual growth),
existing levels of service could be maintained with only a small increase in health care
expenditures relative to GDP (to 8.1% by 2031).
Comparison of Cost Drivers, 1975 to 2005
Sources: Author’s calculations based on CIHI, National Health Expenditure Trends, 1975–2005, Tables B.4.1, B.4.7, E.1.6, and BC Stats,
BC Population by Age: Estimated (1971–2004) and Forecast (2005–2031), Fourth quarter 2005.
Is BC’s Health Care System Sustainable? | A Closer Look at the Costs of Aging and Technology
By simply dedicating the same proportion of new economic output to health care – even after
accounting for population growth, aging and health care inflation – we would have scope for some
modest expansion of services. Put differently, if economic growth rates in the future are consistent
with those over the past quarter-century (5.7% per year) they will lead to health care expenditures
falling as a share of GDP.
The paper models two additional scenarios where the suite of health care services is enriched in the
context of medium economic growth (5% annual growth in nominal GDP). The historical average
enrichment rate is 1.6% per year over the 1975 to 2005 period. After the same adjustments for
population growth, aging and inflation, the paper finds:
•
A 1% annual enrichment rate would require an increase in public health care
expenditures from 7.1% of GDP in 2006 to 8.1% by 2031. It would enable the average
British Columbian to enjoy 28% more health care services by 2031.
•
A 2% annual enrichment rate would require public health care expenditures to grow to
10.3% of GDP by 2031, and would provide 64% more health care services per person.
Thus, greater expansion or enrichment of public health care in the future is possible, but depends on
societal willingness to pay more for better services and care. Interestingly, Carole Taylor’s estimate
of future cost increases (8% per year) implicitly assumes a 3% enrichment rate, almost double the
historical rate.
The real challenge for future health care expenditures comes not from an aging population but the
costs associated with a wide range of new technological interventions:
•
Despite a major increase in surgeries, waiting lists are still an issue because technology has
increased the number of people who can avail themselves of such surgeries. Compared
to 1990/91, an 80-year-old today is twice as likely to have a knee replacement, cataract
surgery, or coronary bypass.
Public Health Care Expenditures Relative to GDP, Three Scenarios
Sources: Author’s calculations based on CIHI, National Health Expenditure Trends, 1975–2005, Tables B.4.1, B.4.7, E.1.6, and BC Stats,
BC Population by Age: Estimated (1971–2004) and Forecast (2005–2031), Fourth quarter 2005, and BC Stats, BC Economic
Accounts, May 2006 update.
Canadian Centre for Policy Alternatives – BC Office
•
Increases in the price of prescription drugs and shifts toward more expensive drugs are a
large part of the growth of drug expenditures, but have not necessarily been accompanied
by improved health care outcomes. Cost efficiencies could be gained through a national
pharmacare program.
•
Expensive end-of-life treatments raise ethical dilemmas, particularly when they prolong
life by days or weeks, but do little to restore health or enhance quality of life. Greater
use of palliative care and “advanced health directives” (that allow older people and their
families to choose a suitable level of medical intervention if serious illness develops)
may point to a future where the health care costs of dying are less than today.
•
A thorough process of health technology assessment is required to ensure that new
technologies provide benefits in accordance with their costs.
The good news is that the challenges facing public health care are not demographic factors beyond
our control, but technological issues that, while profound, are suitable to a public process that is well
within our control. In other words, like every other policy area, we need to make choices, and to do
that we need a healthy democratic debate.
Is BC’s Health Care System Sustainable? | A Closer Look at the Costs of Aging and Technology
Introduction
A popular myth is that the public health care system is unsustainable. The
health care apocalypse goes something like this: Health care costs are already
spiraling out of control, and when those in the baby boom generation start to
hit their senior years en masse the costs of providing health care will surely lead
to the collapse of the public system. The alternative, we are told, is to allow
much greater private provision of services and private health insurance.
This doomsday scenario sounds plausible because it is indeed the case that the population is getting
older. In 2006 there are about 21 seniors for every 100 working age (18 to 64 years old) people; by
2031 this will rise to 39 seniors per 100 working age people.1 However, it should be noted that this
change will happen gradually over time, that 2031 is the approximate peak and the proportion of
seniors will be declining thereafter, and that the number of children relative to the working age
population will decline modestly over this period (thereby reducing pressures on education and
related children’s expenditures).
But while the demographic bulge is very real, does this in fact mean that public health care is
unsustainable? This paper considers the evidence by reviewing the relative impacts of population
aging and other cost drivers, and projecting health care expenditures forward based on the latest
demographic estimates. The focus is exclusively on BC, an interesting case study because of its higherthan-average share of seniors, but its findings are broadly applicable to other provinces as well. It
finds that population aging is a cost driver in the system, but a very small one compared to other
sources, and is easily manageable assuming reasonable economic growth.
The paper argues that the real challenge for financing the health care system is advances in technological
possibilities, broadly defined to include pharmaceutical drugs (the fastest growing component of
health care expenditures), new surgical techniques, new diagnostic and imaging technologies, and
end-of-life care. Over the medium- to long-term, health care faces the prospect of numerous new
innovations related to genetics and biotechnology.
Canadian Centre for Policy Alternatives – BC Office
These developments may or may not lead to better health outcomes, but they do tend to make
health care more expensive. For example, technology applied at the end of life can add substantially
to costs with minimal improvements in either length or quality of life. Technological possibilities
thus raise some important questions about how a (largely) public system sets priorities when the sky
is the limit for any particular ailment. These questions are ultimately ethical in nature and deserve
a full democratic discussion, using evidence to evaluate the benefits of certain interventions relative
to their costs.
The good news is that the challenges facing public health care are not demographic time bombs
beyond our control, but technological issues that, while profound, are suitable to a public process
that is well within our control. It is not the number of seniors that is the problem but finding a
rational framework to ensure that spending per senior is the most effective it can be.
Health Care and the BC Budget: Deceptive Statistics
Perhaps the most misleading charge that public health care is unsustainable has been Finance Minister
Carole Taylor’s assertion that by 2017 health care will consume over 70% of the provincial budget. This
statistic is driven entirely by a rigged estimation of future expenditures on health care and other aspects of
the provincial budget. And ultimately, it is measuring the wrong thing – what matters is the share of our
total income we spend on health care, not the share of the provincial budget.
It is important to note that Minister Taylor’s message parrots the ultra-conservative Fraser Institute, which
has issued an annual report that claims health care is unsustainable because it is growing as a share of
provincial budgets. In its 2006 update the Fraser Institute reports that health care will consume the entire
provincial budget by 2050.2 Thus, the framing of the Premier’s “conversation” on health care is remarkably
similar to that of the Fraser Institute, which has long argued for privatization of public health care.
Both Minister Taylor and the Fraser Institute are able to derive their results by virtue of the fact that in recent
years health care spending has increased due to several new federal-provincial agreements to “save” health
care after cutbacks in the mid-1990s. The Fraser Institute takes this as its starting point, then projects in linear
fashion what would happen if such a trend continued.
While the Fraser Institute’s methodology is questionable, the numbers presented by Minister Taylor are even
more incredible because they assume health care spending increases that are larger than those of recent
history, and that revenue growth in the future will be much lower than recent history. The Finance Minister
assumes the system is unsustainable, and then concludes that it is unsustainable.
The other part of the equation is that education, social services, and other policy areas have not had sufficient
funding increases. Education funding has been held to very small annual increases (with the exception of just
before the 2005 election), while social services and other areas of the budget have seen devastating cuts.
Thus, a good way of addressing this alleged concern about health care spending rising as a share of provincial
budgets would be for the BC government to better fund other aspects of those budgets. Given large federal
and provincial surpluses, it is imperative that funding be increased to fight poverty, build affordable housing,
address urban infrastructure issues, and strengthen the education system. For the Minister to hold back
funding in these areas while preaching that health care will soon consume the lion’s share of the BC budget
is disingenuous.
Is BC’s Health Care System Sustainable? | A Closer Look at the Costs of Aging and Technology
Population Aging and
Health Expenditures
In 2003, we spent an average of $2,656 per person on public health care in BC,
including costs of physician and hospital services, nursing home care, home
support services, public health measures, and administration. But as Figure 1
shows, the amount varies depending on age group. Per person expenditures
rise from youth to old age, but are still below average for those under age 60
(one exception is infants under age one). Above age 60 expenditures increase
sharply, up to just over $22,000 per person for those over age 90. Another
way of looking at this is the share of total expenditures going to seniors. In
2003, BC seniors over age 65 accounted for 13.5% of the population, but
were responsible for 44% of the total public health care budget.3
But does this mean that the aging of BC’s population will bring the system to its artificial knees?
Some caution is urged because this age-utilization pattern may be explained by the fact that onethird to one-half of a typical person’s health care expenditures happen in the final year of life. That
is, the pattern is not entirely due to population aging (“the cost of living”), but due to higher rates of
mortality among older age groups (“the cost of dying”).4
Research is not conclusive on this point: both factors are likely at play. If we exclude people not in
their last year of life, health care expenditures rise from an average of $362 per year for men and $429
for women under age 65 to an average of $666 for men and $545 for women over age 65 (with little
variation within each group). But costs for all ages in the final year of life are $29,181 for men and
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Canadian Centre for Policy Alternatives – BC Office
$50,956 for women – or between 50 and 100 times more than expenditures on those who are not in
their final year of life.5
The implication for future health care expenditures is different if high costs of dying are predominant.
If expenditures increase as a matter of course as people get older, there will be upward cost pressures
associated with an aging population. But if people live longer and healthier lives, and the big costs
are really associated with dying, the real issues relate to end-of-life care options. Indeed, there are
research findings that the baby boom generation has a lower prevalence of certain health conditions
than previous generations, so they are likely to be healthier seniors as well.6 We return to this topic
later in the context of expensive end-of-life technologies.
Population aging must be viewed as one of several factors behind rising health care expenditures.
Other key factors include:
•
Inflation in health care costs, the ongoing rise in the “price” of purchasing the same
level of health care services. This includes the rising salaries of professionals and other
workers, higher costs for supplies and equipment, and so on.
•
Increases in population size, since the health care budget will rise in accordance with a
bigger population. If the population doubles, we should expect health care expenditures
to roughly double in order to maintain the same level of service.
•
The “enrichment” or expansion of health care services, such as the addition of new surgical
procedures or new pharmaceuticals, or the expansion of public coverage to additional
health care sectors.7
Figure 1: Expenditures Per Capita By Age Group
Average for all persons: $2,656
Notes:Data are for 2003, the last available data year for this series, and are for provincial health care expenditures only (i.e. federal
expenditures in BC are not included). Data are drawn from supplemental tables that have more detailed breakdowns than the
equivalent table in the National Health Expenditure Trends report.
Source: CIHI, National Health Expenditure Trends, 1975–2005, Table E.1.6.
Is BC’s Health Care System Sustainable? | A Closer Look at the Costs of Aging and Technology
11
Figures 2 and 3 show these factors visually. Leaving enrichment aside for the moment, Figure 2
isolates the impact of inflation, population growth, and aging for the 1975 to 2005 period. The
biggest cost driver is inflation, with increases averaging 10.7% per year (i.e. the figure shows that due
to inflation it would cost over 400% more in 2005 to provide the same level of service as 1975).8 This
covers a period of high inflation from the mid-1970s to mid-1980s. If we look just at the 1995 to 2005
period, the impact of inflation is less, at 2.4% per year.
Figure 2: Comparison of Cost Drivers, 1975 to 2005
Sources: Author’s calculations based on CIHI, National Health Expenditure Trends, 1975–2005, Tables B.4.1, B.4.7, E.1.6, and BC Stats,
BC Population by Age: Estimated (1971–2004) and Forecast (2005–2031), Fourth quarter 2005.
Figure 3: Public Health Care Enrichment Index
Note:Index derived by adjusting total provincial health care expenditures for inflation, population growth and aging.
Sources: Author’s calculations based on CIHI, National Health Expenditure Trends, 1975–2005, Tables B.4.1, B.4.7, E.1.6, and BC Stats,
BC Population by Age: Estimated (1971–2004) and Forecast (2005–2031), Fourth quarter 2005.
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Canadian Centre for Policy Alternatives – BC Office
Population growth is responsible for increases of 2.3% per year over the 1975 to 2005 period, and
1.2% per year over the 1995 to 2005 period. However, it is notable that increases in population
are generally offset by increases in economic activity, and thus increases in tax revenues to fund
services.
Population aging is the smallest factor of the three, responsible for increases of only 0.7% per year
between 1975 and 2005, rising to 0.9% per year for 1995 to 2005. Projecting cost pressures forward,
aging adds 1.1% per year to the cost of maintaining the status quo of health care services. These
numbers are reassuring in that the magnitude is quite small. This result is consistent with a number
of studies on the fiscal implications of population aging.9
If public health expenditures are adjusted for population growth,
aging, and inflation, what is left is “enrichment.” Figure 3 shows
the enrichment of health care services going back to 1975.10 There
is a nearly continual expansion of health care services in British
There is a nearly continual
Columbia over the past three decades, albeit with some ebbs and
expansion of health care services
flows in the mid-1990s and early-2000s. The total increase in
in British Columbia over the past
spending due to enrichment in 2005 is 48% above 1975 levels
three decades, albeit with some
– that is, the average British Columbian receives almost one and
a half times more health care services as his or her equivalent 30
ebbs and flows in the mid-1990s
years ago.
and early-2000s. The average
A caution on interpretation: enrichment is beneficial in the sense
British Columbian receives
of more nursing homes, more comprehensive drug coverage,
almost one and a half times more
and new technologies. But health care services are not a typical
economic good; rather, they are a response to ill health. Thus,
more health care services are only better to the extent that
health care services as his or her
equivalent 30 years ago.
they lead to improved health outcomes. Health analysts have
developed a concept of quality-adjusted life years (QALY) as an
objective measure of health gains.
In the late 1970s and 1980s, the expansion of public coverage of health care was in nursing homes and
public provision of home support services. This built on the 1960s advent of public health insurance
for hospitals and then doctor services. Since the early 1990s, however, there has been relatively little
change in the scope of coverage; in fact, there has been some contraction in BC, such as elimination
of most coverage for alternative providers, and a net reduction in long-term care beds and home
support services since 2001.11 This suggests that enrichment seen in the late-1980s and late-1990s
was about changes in the mix of services provided, and most likely represents the introduction of
new surgical techniques, new pharmaceutical drugs, and other technological developments.
Is BC’s Health Care System Sustainable? | A Closer Look at the Costs of Aging and Technology
13
Apocalypse 2031?
Looking back, population aging has not been much of a concern. But the
future challenge is the aging of the baby boom cohort. Using projections
from BC Stats about population growth and aging, and estimates of health
care inflation,12 we can forecast health care costs in the future (assuming
status quo service levels, meaning neither expansion nor contraction of
health care services).
The combination of population growth, aging, and inflation amount to an annual increase in health
care budgets of just under 5% per year in order to stay at the same level of health services (i.e. all
85-year-olds in the future, though larger in numbers, are serviced at the same expenditure levels as
today’s 85-year-olds). Based on these projections, we can expect total public health care spending to
rise by more than three times current levels by 2031. This is a convenient end-point as this represents
approximately the peak year of seniors as a share of the population – long-run demographic projections
suggest a period of declining share of the population over 65 after 2031 (i.e. after the bulge of baby
boomers has passed on).13
To put these numbers into context, we also estimate changes in provincial GDP to see what proportion
of the total economy health care will compose. BC’s nominal GDP growth rate averaged 5.7% from
1982 to 2005 and 5.1% over the 1991 to 2005 period.14 In real terms (adjusting for inflation), BC’s
growth rate averaged 2.5% from 1982 to 2005 and 2.8% over the 1991 to 2005 period. During the
1960s and 1970s, both real and nominal growth rates were respectively higher.15
For future projections, three scenarios of GDP growth are considered: low growth (real GDP growth
of 2% per year, plus 2% annual inflation, the middle of the Bank of Canada’s target range), medium
growth (3% annual growth plus 2% inflation) and high growth (4% annual growth plus 2% inflation).
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Canadian Centre for Policy Alternatives – BC Office
Thus, our high-growth scenario is slightly higher than the average back to 1982, and the mediumgrowth scenario is slightly lower than the average back to 1991.
Figure 4 presents the results. In the high growth scenario, public health care expenditures-to-GDP
falls from the 2006 level of 7.1% to 4.9% by 2031.16 In the middle scenario, health care expendituresto-GDP also falls, to 6.3% by 2031. Only in the low-growth scenario does the expenditure-to-GDP
ratio rise, to 8.1%, an increase of one percentage point of GDP. Thus, even if the economy were to fare
poorly by historical standards, existing levels of service could be maintained without much difficulty
even though the population is growing and aging.
By simply dedicating the same proportion of new economic output to health care – even after
accounting for population growth, aging and health care inflation – we would have scope for some
modest expansion of services. Put differently, if economic growth rates in the future are consistent
with those over the past quarter-century (5.7% per year) they will lead to health care expenditures
falling as a share of GDP.
In both the medium- and high-growth scenarios, there is also scope to further expand the coverage of
public health care. Examples include expanding long-term care services significantly, adding dental
coverage to the public system, paying for new surgical procedures yet to be invented, or providing
universal, “first-dollar” public drug coverage. It is also reasonable to expect that health care resources
will shift to reflect a more efficient allocation relative to the needs of an older population (such as
more home care services, estimated to cost one-fifth as much as acute care services, and residential
care facilities17).
Two additional scenarios are worth considering, each assuming medium economic growth plus
enrichment of health care services of 1% and 2% per year. To put these rates in context, the historical
average enrichment is 1.6% per year over the 1975 to 2005 period, and 1.3% per year over the 1995 to
2005 period. At a 1% annual enrichment rate, the average British Columbian would enjoy 28% more
Figure 4: Public Health Care Expenditures Relative to GDP, Three Scenarios
Sources: Author’s calculations based on CIHI, National Health Expenditure Trends, 1975–2005, Tables B.4.1, B.4.7, E.1.6, and BC Stats,
BC Population by Age: Estimated (1971–2004) and Forecast (2005–2031), Fourth quarter 2005, and BC Stats, BC Economic
Accounts, May 2006 update.
Is BC’s Health Care System Sustainable? | A Closer Look at the Costs of Aging and Technology
15
health care services by 2031, and under a 2% annual rate, 64% more health care services by 2031.
Even though such annual changes seem small, because of compounded growth, they accumulate to
large changes over a quarter-century.
There is a price to pay for expanding or enriching of services in these two scenarios. At a 1% annual
rate, health expenditures rise as a share of GDP, though very gradually, from the current 7.1% to 8.1%
by 2031. The challenge is greater with an enrichment rate of 2%, as expenditures increase to 10.3%
of GDP by 2031. However, this enrichment growth rate is much larger than the historical experience
of the past 30 years. Interestingly, Finance Minister Carole Taylor’s estimate of 8% annual increases is
effectively a 3% annual enrichment rate, almost double the historical rate.
Nonetheless, these thought experiments enable us to have a
more rational sense of what is possible at what cost. To meet
Demographic trends are not the
looming disaster they are often
the 1% enrichment objective would require an additional penny
per dollar of new income generated in BC. A 2% enrichment
rate might be dismissed for its cost but ultimately is simply a
made out to be in the media.
question of whether we are willing to pay to expand the scope of
We have lots of time to gradually
health care services. Much of this would simply shift health care
respond to the challenges posed
costs from individuals to the public sector. Finally, it is worth
reiterating that the share of seniors relative to the working age
by an aging population. We can
population is expected to decline after 2031, a fact that will tend
maintain existing levels of service
to reduce pressures on the health care system.
without any difficulty, and can
The key conclusion is that demographic trends are not the
handle modest enrichment of
services.
looming disaster they are often made out to be in the media. We
have lots of time to gradually respond to the challenges posed
by an aging population, including a restructuring of health care
services (such as home care and residential care) more consistent
with an older population, and ideally a stronger emphasis
on prevention and population health that will reduce the overall incidence of ill health. We can
maintain existing levels of service without any difficulty, and can handle modest enrichment of
services. Higher levels of enrichment are possible, but would likely depend on societal willingness to
pay more for better services and care.
16
Canadian Centre for Policy Alternatives – BC Office
The Realm of the Possible
The real challenge for future health care expenditures comes not from an
aging population, but the amount of spending per person as represented by
a wide range of new technological interventions. Health care, as a discipline,
is intimately intertwined with issues of technology and knowledge. In
its modern form, health care is at most a hundred years old, built upon
advances in knowledge in biology and related fields. As scientific know-how
increases, there are likely to be more and more new possibilities available to
treat medical conditions.
Key areas of technological development include: diagnostic imaging; telehealth; biotechnology;
vaccines; pharmaceuticals; medical implants and external devices; genetic screening and gene
therapy; surgical techniques; and organ transplants and grafts. While it is plausible that some of these
innovations will save money, the universe of innovation that is possible in health care, together with
a persistent demand for cures among the population, suggest that technology will be a cost driver.
Health economist Shelly Glied argues that the introduction and diffusion of new technology in health
care is the main determinant of cost increases over the long term. There are two reasons cited:
First, improvements in the health outcomes produced by a medical service mean that more patients
can expect to obtain health benefits from the technology. ... Second, innovations in medical care,
especially cost-reducing innovations, often reduce the invasiveness and intensity of the treatment
itself and thus reduce the pain, discomfort or time associated with treating a particular condition,
even when outcomes do not improve ... [which] also expands the size of the market.18
Is BC’s Health Care System Sustainable? | A Closer Look at the Costs of Aging and Technology
17
If budgets were unlimited and merely reflected the decisions by practitioners to use technology, the
cost implications could be in excess of enrichment estimates made in the previous section. It is also
very likely that new innovations would have diminishing returns in terms of improvement of health
outcomes per dollar of new spending. In a constrained budget environment, there is a risk that new
technological innovations will crowd out other services. We return to the issue of how we address
these challenges in the context of a public system, but first a few illustrations in the BC context are
worth exploring.19
New Surgical Techniques
Lengthy waiting lists tend to be concentrated in a few procedures, such as orthopaedics (especially,
knee and hip replacements) and cataracts, where the demand for these procedures has increased at a
rate far beyond that of other surgical areas, and far beyond what would be expected from population
growth and aging alone.20 Due to less invasive surgical techniques, knee and hip replacements that
were more problematic in the past are now routine and relieve chronic suffering on the part of
patients.
The BC Ministry of Health reports that, compared to 1990/91, an 80-year-old today is twice as likely
to have a knee replacement, cataract surgery, or a coronary bypass, and eight times as likely to have
an angioplasty. Across a number of key areas, the BC health care system is performing substantially
more surgeries than would result from population growth or aging alone. Between 2000/01 and
2005/06:
•
total angioplasties performed are up 62%;
•
knee replacements up 84%;
•
hip replacements up 47%; and,
•
cataract surgeries up 33%.
Population growth over this timeframe was just under 5%. In the case of knee surgeries, BC now
performs almost three times as many surgeries as in 1990/91 (3,600 in 2003/04 and 1,300 in 1990/91),
and most of this is due to performing more surgeries per capita compared to population growth or
aging.21 Yet, despite the increase in surgeries, waiting lists are still an issue because technology has
increased demand, or the number of people who can avail themselves of such surgeries.
In response to these technology-driven outcomes, the above areas are precisely those where private
services are making an incursion. Less invasive surgeries can be performed on a day-surgery basis, and
do not require all of the overhead associated with a hospital. Private clinics have sprung up, such as
the noted Cambie Surgery Clinic (run by new Canadian Medical Association President Brian Day),
along with much rhetoric about how much more efficient private clinics are. However, as experience
in Alberta suggests, specialized day surgery clinics may make good financial sense, but the same
efficiencies and cost savings can also be realized in the public sector, rather than private surgery
clinics.22
18
Canadian Centre for Policy Alternatives – BC Office
Diagnostics and Imaging
According to the Ministry of Health, between 2001/02 and 2005/06, the number of diagnostic
machines in BC has increased: from 31 to 41 Computed Tomography (CT) scanners; from 9 to 19
Magnetic Resonance Imaging (MRI) scanners; and a Positron Emission Tomography (PET) scanner
has recently been purchased. Accordingly, the number of diagnostic scans has also increased – by
22% for CT exams and by 50% for MRI exams – again, at paces much faster than population growth
or aging would require.23
While greater availability of MRI machines or PET scanners opens up new possibilities in assessing
disease, a positive development, it is also another case of technology driving demand for services
previously unavailable or much harder to access. The potential for a whole new suite of genetic testing
and screening technologies raises additional ethical as well as economic and health issues about how
the public system needs to address technological advances. A caution is that while such technological
developments will almost surely be more costly, they may not
provide more information that older technologies, and may be
used more widely than specific cases that would actually benefit
most from the technology.
A related innovation in this area is the development of 3-D
ultrasound technology that produces higher resolution images for
An 80-year-old today is twice as
likely to have a knee replacement,
cataract surgery, or a coronary
monitoring fetal development (among other possibilities). Most
bypass, and eight times as likely
parents would presumably want a high-resolution, 3-D image of
to have an angioplasty. Across
their baby-to-be over a traditional ultrasound, but it is not selfevident that, in most situations, 3-D imaging would provide
sufficient additional information to justify the higher cost.
a number of key areas, the BC
health care system is performing
substantially more surgeries than
would result from population
Pharmaceutical Drugs
growth or aging alone.
Drugs are the fastest growing part of health care budgets, both public and private. Public coverage
in 2004 paid for 49% of total prescription drug spending in BC.24 The rising cost of drugs overall is
accounted for by both increased utilization of drugs – drug therapies are more prevalent and new
developments can treat ailments that could not previously be treated – as well as the increasing cost
of the drugs themselves due to new drugs under patent entering the market. Increases in the price
of prescription drugs and changes toward more expensive drugs are a large part of the growth of
drug expenditures, but have not necessarily been accompanied by improved health care outcomes.25
Another culprit could be over-prescriptions and inappropriate prescriptions on the part of doctors,
the latter of which is one source of costly hospital admissions.26
Nation-wide, drugs and medical supplies have been increasing as a share of hospital budgets.27 In the
case of drugs this is considerably less than the increase in drugs as a share of public health expenditures
overall. This latter point may be the result of much lower costs of acquiring and dispensing drugs
in hospitals compared to pharmacies. CIHI’s 2005 report on drug expenditures estimates that drugs
Is BC’s Health Care System Sustainable? | A Closer Look at the Costs of Aging and Technology
19
accounted for $192 million, or 4.3%, of BC hospital expenditures in 2002 (cost of drugs only, not
including associated hospital pharmacy costs).
The combination of higher drug costs and technology costs overall may mean hospitals are being
squeezed in other aspects of their budgets by more than is evident from hospital spending numbers.
Maurice McGregor and James Brophy make the case that these new technological possibilities have
enabled enhanced services to be provided in hospitals, and this has come at the expense of other
aspects of hospital budgets. While this is a compelling explanation, macro data on the impact of
technology on hospital budgets are hard to come by.
Moving to first-dollar public coverage through a national Pharmacare program would deepen
incentives for cost-control. Dr Joel Lexchin estimates that a national Pharmacare program would
cost between $3 billion and $4 billion more than existing public
expenditures.28 A recent report for Health Ministers under the
The rising cost of drugs overall is
National Pharmaceutical Strategy set additional costs to the public
sector for a catastrophic drug coverage plan as ranging between
accounted for by both increased
$1 billion and $4 billion depending on the formula used.29
utilization of drugs and the
As part of a coordinated national plan, numerous policy
increasing cost of the drugs
initiatives could be implemented to better control drug costs.
themselves. Increases in the price
The federal government could restore compulsory licensing to
enable greater generic drug production for the Canadian market,
of prescription drugs and changes
enhance funding for new drug development that would be put
toward more expensive drugs
in the public domain, engage in bulk purchasing, and determine
are a large part of the growth of
a common formulary that would be covered in all provinces.
It could also limit the challenges posed by direct-to-consumer
drug expenditures, but have not
advertising of drugs.30
necessarily been accompanied by
In the BC context, it is worth noting that the provincial reference
improved health care outcomes.
drug program has been successful in containing costs for a very
limited number of drug categories by paying only for the lowest
cost drug that is therapeutically equivalent. Annual savings as
a result of the program are in the $24 million to $42 million range from the time the program was
introduced in 1995 up to the end of the decade.31
End-of-Life Care
As pointed out earlier, a large proportion of health care expenditures occur in the last year of life.
What is important is the impact on the margin of additional health care dollars spent. For example,
billions could disappear into extremely expensive end-of-life treatments that prolong life by days or
weeks, but do little to restore health or enhance quality of life.
This raises some deep ethical questions about opportunity costs. This money might be better spent,
from a population perspective, on prevention and public health measures, or on public dental and
eye care, or expanding public coverage of pharmaceuticals or home support services.
20
Canadian Centre for Policy Alternatives – BC Office
It is not obvious that expensive end-of-life treatments are what are desired by dying seniors nor that
such interventions improve quality of life. In contrast, palliative care options have been suggested
that assist people to die with dignity at home or in a home-like setting rather than in hospital. The
Canadian Hospice Palliative Care Association comments:
Experience shows, however, that when people die within a system that provides good hospice
palliative care, the patient, family members and health professionals express a high degree of
satisfaction. Leading research … found that patients experienced significant improvements in
their physical and psychological well-being within one week of being admitted to a palliative care
unit. Despite approaching death, improved quality of life was experienced.
This, in combination with “advanced health care directives” that allow older people and their families
to choose a suitable level of medical intervention if serious illness develops, may point to a future
where the health care costs of dying are less than they are today.32
Is BC’s Health Care System Sustainable? | A Closer Look at the Costs of Aging and Technology
21
Technology:
Who Decides?
The increasing cost of new technological interventions must be weighed
against their benefits. Not every new technology will be justified, and there
may be significantly diminishing returns to advances in technology. This
discussion quickly becomes one of ethics: How much does society expend on
an individual’s care when the sky is the limit? This paper cannot answer that
important question, one deserving of thorough public discussion and debate.
On this issue, US economist Paul Krugman wonders:
Consider what happens when a new drug or other therapy becomes available. Let’s assume
that the new therapy is more effective ... than existing therapies ... but that the advantage isn’t
overwhelming. On the other hand, it’s a lot more expensive than current treatments. Who decides
whether patients receive the new therapy?
We’ve traditionally relied on doctors to make such decisions. But the rise of medical technology ...
makes ... medicine ... in which doctors call for every procedure that might be of medical benefit,
increasingly expensive. Moreover, the high-technology nature of modern medical spending has
given rise to a powerful medical-industrial complex that seeks to influence doctors’ decisions.
...[D]rug companies in particular spend more marketing their products to doctors than they do
developing those products ... They wouldn’t do that if doctors were immune to persuasion.
So if costs are to be controlled, someone has to act as a referee on doctors’ medical decisions.33
22
Canadian Centre for Policy Alternatives – BC Office
As Krugman alludes to, the context into which technology enters the health care system is important,
including the position of care providers and “consumers.” UBC’s Robert Evans cautions against
idealizing technology, noting that doctors have a bias towards the use of new technology for a
number of reasons, such as appearing to be doing something in the face of an ailment. As such they
may resist efforts to evaluate outcomes or questionable practices.34
A review of new technology for the Romanow Commission argued for enhanced health technology
assessment and a renewed federal role in technology regulation to ensure the appropriate application
of new technologies and to shape the development of new technologies at an early stage.35 This
approach is common in European health care systems.36
There are also important ethical and social considerations with regard to new technology that
must be considered (for example, in cloning, stem cell research, genetic screening, and end-of-life
interventions). This context will be important in the future in order to balance innovation with costcontainment (ultimately, whether a new technology should be covered by public health insurance),
and ensure that new technologies provide benefits in accordance with their costs. McGregor and
Brophy argue for health technology assessment processes at the hospital level, not just by senior
governments distanced from professionals making decisions.
The Romanow report concludes that:
Health technology assessment is a comprehensive and systematic assessment of the conditions
for and the consequences of using health care technology. It provides relevant information to
managers, decision makers, and health care providers on the safety, economic efficiency, clinical
effectiveness, as well as the social, legal and ethical implications of using new and existing
technologies. Indeed, health technology assessment should be about what is best for the patient
– medically and economically – and not about technology for technology’s sake. The assessment
is intended to help health policymakers, providers, and especially, health organization managers
make decisions about whether to purchase and use new technologies, whether to replace old
technologies with new ones, and what benefits they can expect to see.37
Having these decisions made in a public context is important. In addition, technology changes
the boundary between publicly insured services and private services. As a research team from the
University of Toronto notes:
Canada’s distinctive way of defining the boundary between public and private finance has had its
own particular vulnerability. As technological changes have shifted services out of hospital, care
has migrated from a world of universal, first-dollar coverage to a world in which private finance
plays a much larger role.38
Health researcher Marcy Cohen argues for increased democratic participation in health care based on
more participatory models from other countries that could be applicable to health care in BC.39 In the
context of technology, an attractive option could be public representation on technology assessment
committees, and greater participation in establishing formularies for drugs to be publicly covered. At
any rate, greater public involvement will make a more transparent connection between tax dollars
collected and how money is spent in the health care system.
Is BC’s Health Care System Sustainable? | A Closer Look at the Costs of Aging and Technology
23
Conclusion
This paper finds that population aging, in and of itself, is a contributor to
rising cost pressures in the health care system, but a relatively small one.
Based on current projections there is little to suggest a demographic timebomb about to go off. In the context of reasonable economic growth, the
health care system can accommodate increases in population and an older
population while preserving, and even increasing, the existing level of
services (including new technological options).
That said, the health care system is providing a broader suite of services than it did in the past. The
possibilities offered by new technology have to date been accommodated by the public system. While
some cracks are apparent, such as with surgical waiting lists for certain procedures, it is important to
note that the health care system has expanded a great deal from its early days.
The challenge will be to ensure that new money in the system is directed to areas with the highest
marginal benefit. While new technologies are sexy, in many cases we have little empirical data on
whether they are effective or whether they justify their cost. The capacity to come up with new
technological innovations may be limitless, although only a few may prove worthwhile additions.
The opportunity cost of spending more on the latest technology may be increased expenditure on
measures such as improvements in population health, community care or the expansion of public
coverage to include dental care services.
In other words, like every other policy area, we need to make choices, and to do that we need a
democratic public debate. This is the essential benefit of a public health care system: we pay collectively
and must decide collectively on the available choices.
24
Canadian Centre for Policy Alternatives – BC Office
Notes
1
BC Stats, British Columbia Population Forecast 05/04: Summary Statistics.
2
Skinner, 2006.
3
Data cited are from CIHI, 2005, Table E.1.6 (the detail in the figure is from supplemental
electronic tables rather than the published report). All BC data in this report are based on BC
government expenditures. CIHI additionally presents data on total “public” expenditures,
which includes federal spending in BC, e.g. on reserves and the military.
4
Hogan and Pollock, 2001. The authors find one-half of expenditures occur in the last year of
life, but note that other studies set estimates closer to one-third.
5
Pollock, 2001. Another study relevant in the BC context is McGrail et al. (2000), who
find that costs of care do rise with age, but that proximity to death is a more important
determinant of cost.
6
Summarized in Hogan and Hogan, 2002.
7
Finance Canada researchers Jackson and McDermott (2004) use the term “enrichment.” This
paper follows their methodology for determining enrichment as a residual after adjusting
for other cost drivers. The term “enrichment” arguably better captures the notion of changes
in the nature of health care services and technology over time, in addition to quantitative
expansion of services.
8
Inflation in the context of health care raises some methodological issues. According to CIHI
(2001): “The National Health Expenditure (NHEX) database uses separate price indexes to
calculate public and private sector expenditure at constant prices. The indexes are the GDP
implicit price indexes (IPI) for government current expenditure on goods and services in the
public sector and the health component of the consumer price index (CPI) in the private
sector.” A comparison of indices in this report found that that health inflation (a weighted
composite of the two indices above) was slightly higher than GDP inflation between 1975
and 1990, but since then the two have increased at almost identical rates.
9
For reviews of this literature, see Evans et al (2001) and Hogan and Hogan (2002).
10
Presented as an index to show the percentage change over time.
11
Cohen et al., 2005.
12
The estimate of inflation assumes the 1997 to 2004 average annual inflation rate projected
forward to 2031.
13
Given the discussion in the previous section on the cost of dying as opposed to aging-driven
cost increases, this estimate should be considered an upper bound that overstates the impact
of population aging. For instance, Evans et al. (2001:169) comment: “A projection of hospital
use made in 1969 based on assumed constant age-specific use rates would have been not
merely erroneous but wildly so – triple the actual value for the BC population at the end of
the century.”
Is BC’s Health Care System Sustainable? | A Closer Look at the Costs of Aging and Technology
25
14
15
Derived from BC Stats, BC Economic Accounts, April 2006 release.
The impact of an aging population on GDP growth is ambiguous. GDP growth will be lower
to the extent that labour force participation declines, and higher if productivity rates can be
improved.
16
See Hogan and Hogan, 2002.
17
Based on estimates from the BC Ministry of Health, cited in Evans et al., 2001. Such shifts are
not considered in the scenarios of future costs.
18
Glied, 2003, pp.134-5.
19
These examples are principally related to seniors. Expensive technological interventions also
occur at the beginning of life, such as treatments for increasingly premature babies.
20
McFarlane, 2005.
21
Figures from BC Ministry of Health, 2005 and 2006.
22
Rachlis, 2005.
23
BC Ministry of Health, 2005 and 2006.
24
CIHI, Drug Expenditure in Canada 2003 and Drug Expenditure in Canada 2005.
25
Evans et al., 2001.
26
See Canadian Association on Gerontology, 1999. Among other things, it reports that 19 to
36% of drug-related hospital admissions are the result of prescribing errors.
27
CIHI, Hospital Trends in Canada 2005.
28
Lexchin, 2001. He cites the additional cost at $3.2 billion. In this paper, the figure has been
altered to between $3 billion and $4 billion because original figures were derived from 1996
drug cost data and were not adjusted for inflation.
29
Federal/Provincial/Territorial Ministers Task Force, 2006, p. 32.
30
Morgan and Hurley (2002) argue that direct-to-consumer marketing of technology
developments, particularly to the aging baby boomer cohort, will be an important costdriver. Research by Barbara Mintzes et al. (2003) suggests direct-to-consumer advertising is
having detrimental impacts on the nature of treatment.
31
As surveyed by Cassels, 2002.
32
National Advisory Council on Aging, 2000.
33
Krugman, 2005.
34
Evans, 2003, p. 20.
35
Lehoux, 2002.
36
According to Glied, 2003.
37
Romanow Commission, 2002, p. 83.
38
Flood et al, 2004.
39
Cohen, 2005.
26
Canadian Centre for Policy Alternatives – BC Office
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28
Canadian Centre for Policy Alternatives – BC Office
www.policyalternatives.ca
About the CCPA
The Canadian Centre for Policy Alternatives is an independent, non-partisan research institute
concerned with issues of social and economic justice. Founded in 1980, it is one of Canada’s
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